Comments on: Earnings Power Value EPV and Book Review

By: J Mako

J Mako — Fri, 21 May 2010 03:32:50 +0000

I came to this review from review on Active Value Investing.

I read this book too. At the time I thought it has a neat framework. However, I recently read in Lowenstein’s “The making of American Capitalist”, Greenwald himself admitted privately he was clueless on investing and it was speculation turned him on. (You can easily read those lines that by searching for “Greenwald” in the book content on Amazon.) That casts serious doubt on this book and whether it’s just pure intellectual/ivory tower work with no practical relevance.

By: Jay

Jay — Fri, 25 Sep 2009 04:57:54 +0000

Excellent write up, Jae! I picked up this book about 6 months ago and am about half way through reading it. It is most definitely a book that you need to sit down with a pen and paper to truly understand.

By: Jim

Jim — Tue, 08 Sep 2009 22:32:33 +0000

Jae, pick up a copy of Greenwald’s other book “competition demystified”. I’m on my 3rd read. Its a very complex book and I wouldn’t recommend it to a new or relatively new analysts because of its complexities but it is a fantastic read. Its my 3rd read and its taken than many times to understand it and I’m sure I’ll read it a few more times. Basically, its a condensed version of Michael Porter’s works. Condensed in terms of being more concentrated for the value investor rather than a macro economist.
.-= Jim´s last blog ..Axcelis Tech. Update =-.

By: Jae Jun

Jae Jun — Tue, 08 Sep 2009 21:13:26 +0000

@ Todd,

When I read the middle section alone, it’s about a 100 pages or less so it didn’t take long to read. I go through it on the plane to NY with lots of naps in between.

By: Jae Jun

Jae Jun — Tue, 08 Sep 2009 21:11:39 +0000

@ Floris,

The upcoming spreadsheet in October will include a tab that allows you to adjust and value the assets, including long term assets and fixed assets.

A more modernized and flexible method.

By: Todd @ Personal Finance Playbook

Todd @ Personal Finance Playbook — Tue, 08 Sep 2009 18:34:04 +0000

I starting reading this book two years ago, got half way through it, put it down and never got back to it. I saw it on my shelf the other day. I’m looking forward to reading it, though I’m going to check out at least one of the books you recommended that are a bit more elementary. Thanks for the post.

By: Floris

Floris — Tue, 08 Sep 2009 14:12:03 +0000

@Jae Jun

Yes, he does. He especially takes into account long term assets that can easily be liquidated (prime real estate). The standard NCAV formula completely ignores real estate which has become much more liquid since the formula was first devised (at least until this crisis, but let’s assumes it will revert to the mean).

By: Floris

Floris — Tue, 08 Sep 2009 14:06:27 +0000

Hey Jim,

I know he is quite respected (just look at the class recordings available at the schloss archive) and I will read his book. Call it availability bias that I ignored his book for this long.

By: Jim

Jim — Mon, 07 Sep 2009 23:03:45 +0000

@Jae,

I would love to take a look at the spreadsheet. I eagerly await your email. You do excellent spreadsheet work.
.-= Jim´s last blog ..Axcelis Tech. Update =-.

By: Jae Jun

Jae Jun — Mon, 07 Sep 2009 20:43:41 +0000

@ Floris,
Thanks for the book rec. Will look into it. I do believe that Marty Whitman also makes several adjustments to the balance sheet but basically follows the principles of Benjamin Graham.

@ Alex,
I took the time to read the value investor section while I was on the plane but after a few pages, I still didn’t find much valuable info. Basically the same stuff as what I’ve read in countless articles and other books. Still good none the less.

@ Jim,
Didn’t know Buffett made guest appearances to his lectures. Very impressive. I do like Greenwald’s method of teaching and he obviously is a very smart guy. Wonder what his track record was/is like..

When you first mentioned all the EPV calculations over a year ago, I didn’t understand it all but after reading the book, it’s a great learning tool.

I’m currently in the process of adding an EPV valuation to the spreadsheet and I’m nearly done with the reproduction value section. Hope to get some more done and then I’ll send it over to you for your opinion and comments if you don’t mind.

By: Jim

Jim — Mon, 07 Sep 2009 20:24:14 +0000

P.S. Jae, I made an early mistake in my EPV calculation when I first brought up the EPV theory to you over a year ago (possibly 2 now: time goes by). I was deducting 1% from cash and the proper deduction should have been 1% deducted from sales (revenue).

EX.

Revenue = $100 Mill.
Cash & Equivalents = $12 Mill.
1% of Revenues = $1 Million.
Cash & Equiv. – $1 Million = $11 Million.

$11 Million is the amount to add back into the EPV along with deducting all interest bearing debt.

By: Jim

Jim — Mon, 07 Sep 2009 20:18:56 +0000

Nice review Jae. I’d like to point out to FLORIS in case he/she didn’t know, Greenwald’s book was co-authored by Judd Kahn & Paul Sonkin; two very successful practitioners of the EPV method. I also want to point out that Bruce Greenwald is not only an academic, he is considered the “guru of guru’s” and one of the few professor’s of value investing that Warren Buffett makes special guest appearances in his class. I guess you can’t get any better of a “stamp of approval” than from Warren Buffett or Paul Sonkin.
.-= Jim´s last blog ..Axcelis Tech. Update =-.

By: Alex

Alex — Mon, 07 Sep 2009 17:25:46 +0000

The chapters on the value investors are worth the read alone.

Check out his latest video…http://www.youtube.com/watch?v=39so_a2qKEI&feature=player_embedded
.-= Alex´s last blog ..Stocks On The Move 9.06.09 =-.

By: Floris

Floris — Mon, 07 Sep 2009 06:54:37 +0000

thanks for the post. It has been on my list, but for some reason I have been hesitant to read something academic (as my background is academic finance, I know how stupid they can be). I’ll purchase it next time I order a lot of books on amazon. If you haven’t yet, the aggressive conservative investor is a great work on net asset value. It really clarifies this topic (and is written by a successful practitioner)